Rajah & Tann Singapore advises on Singapore’s first catastrophe bond

The bond, an A$75 million Series 2019-1 Class A Principal At-Risk Variable Rate Notes due 17 January 2022, is the first A$-denominated catastrophe bond in the global market. The issuer is Orchard ILS Pte. Ltd., the first special purpose reinsurance vehicle (SPRV) licensed by the Monetary Authority of Singapore (MAS).

Rajah & Tann Singapore acted as Singapore counsel to the transaction. Its Head of Insurance & Reinsurance Practice Simon Goh said: “This is an exciting development for Singapore’s ambition to be the hub in Asia for insurance-linked securities (ILS).

“The fact that we completed this inaugural ILS transaction within a few weeks demonstrates the efficiency and business-friendly regulatory environment in Singapore. Following this successful transaction, we are optimistic that more issuers will consider coming to Singapore.”

He added that this pioneer catastrophe bond will help broaden Singapore’s capital markets by adding a new asset class and generating a new set of service providers locally. This will be needed to support insurance-linked securities issuances as traction and interest pick up with new deals and possible listings on the Singapore stock exchange for such bonds.

Mr Goh, who led the Rajah & Tann team for the deal, is a member of the MAS alternative risk transfer working-group (MAS ART WG) which comprises industry experts. The MAS ART WG formulated recommendations for the ILS Grant Scheme, which was introduced by the MAS in February 2018. The grant scheme funds upfront ILS bond issuance costs and complements a progressive regulatory system that supports the incorporation of a purpose-built reinsurance entity in Singapore to securitise risks, and a tax framework that provides tax neutrality to the reinsurance entity and ILS investors.

For the IAG sponsored bond, Mr Goh and his team, which includes partner Lee Xin Mei from the Debt Capital Markets Practice, helped the client navigate the Singapore legal and regulatory aspects of this ground-breaking deal which also encompassed advising on the qualifying criteria for the ILS Grant Scheme, Qualifying Debt Securities Scheme and the Tax Incentive Scheme for Special Purpose Vehicle engaged in Asset Securitisation Transaction.

ILS is a way for insurers and reinsurers to spread their risks to the capital market. By all estimates, it is poised for substantial growth. Data from the United Nations’ Economic and Social Survey of Asia and the Pacific showed that Asia has accounted for almost half of the world’s economic losses from natural disasters in the last 20 years. Economic losses in Asia Pacific is projected to exceed US$160 billion annually by 2030.

Insurance penetration is still low in the region, with just 8% of natural catastrophe losses insured compared to 40% in developed regions.

Analysts have commented there is thus an opportunity for ILS to play a larger role in reducing the protection gap and financial impact of natural disasters.

Rajah & Tann Singapore is one of the largest full-service law firms in Singapore and South East Asia, with market leading practices in M&A, dispute resolution, international arbitration, shipping, insolvency, restructuring, capital markets, competition law, corporate & commercial, among others. Through Rajah & Tann Asia, it is a member of one of the largest legal networks in ASEAN with some 700 fee earners.

Rajah & Tann Asia brings together leading law firms and lawyers in Cambodia, China, Indonesia, Lao PDR, Malaysia, Myanmar, Singapore, Thailand, the Philippines and Vietnam, with each offering the highest standards of service to locally-based clients while collectively having the capability to handle the most complex regional and cross-border transactions and to provide excellent legal counsel seamlessly across the region. With over 700 fee earners, all working towards one shared goal, we are lawyers who know Asia and who give our clients home advantage.